Economic integration in the case of fiscal unity - BFH ruling V R 28/20 of 11 May 2023 (published on 14 September 2023)

The fiscal unity (or VAT group) for VAT purposes is a moving target - especially with regard to the economic integration that this requires. Legal practitioners have to rely on vague legal terms that make a reliable assessment difficult. The BFH (German Federal Fiscal Court) has now added some clarification here.

Facts and dispute: Economic integration

The plaintiff was a GmbH (limited liability company) whose sole shareholder and managing director was G, a natural person. G was also the sole shareholder and managing director of a GbR (partnership under civil law). The GmbH managed some of G's rented properties against payment.

The GmbH was part of a larger group of companies (the V Group) that offered services in the real estate sector.

The dispute concerned the VAT assessment of the GmbH. The GmbH argued that it was not liable for VAT because it was a dependent subsidiary of G as the controlling company of a VAT group. The financial and organisational integration was not an issue due to the 100 % shareholding and the identity of the managing directors. However, the tax office and later the tax court did not recognise the economic integration. The BFH based its decision on the following factors: 

Materiality of the relations between G and the GmbH

The activities of the controlling company and the controlled company must be coordinated and thereby promote and complement each other. For this purpose, it is sufficient if the relationship between the controlling company and the controlled company is significant. The controlled company does not have to be economically dependent on the controlling company.

In the first instance, the tax court ruled that property management services for the recipient (here the GmbH), similar to accounting and personnel management services, are standardised services whose providers can be easily replaced.

However, the BFH takes a different view and states that the question to be asked is: How significant are these services to the GmbH as the supplier? This aspect of the facts must be subsequently determined by the tax court in the second judicial process.

Economic integration with other companies of the V Group

The tax court had also failed to examine whether there was an economic interdependence between the GmbH and other companies of the V group.  This must also be addressed, as an interdependence between sister companies would also be sufficient.

The GmbH belongs to the business assets of the G

The tax court had argued that economic integration already failed because G had not allocated his shareholding in the GmbH to his business assets. However, the BFH does not see any connection here; it is only a matter of the promotion of an existing or intended activity

Dated: 25 September 2023


Nadia Schulte
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